Deals wrap: Splitting up ConocoPhillips
Integrated energy company ConocoPhillips said it would split its businesses into two stand-alone, publicly traded corporations by spinning off its refining and marketing business.
Borders Group’s buyout deal with private equity firm Najafi Companies collapsed, raising the possibility that the bankrupt bookseller could be forced to liquidate its remaining stores and go out of business.
L-3 Communications, which faces breakup pressure from an activist investor, is expected to divest some low-end services assets but does not plan a broader portfolio restructuring such as a breakup, people familiar with the situation said.
“A group led by Joshua Harris, a co-founder of the private equity firm Apollo Global Management, announced late on Wednesday that it had reached an agreement to buy the Philadelphia 76ers basketball team from the sports company Comcast-Spectacor,” reports DealBook.
Deals wrap: Dodgers strike out
The Los Angeles Dodgers filed for bankruptcy protection, blaming Major League Baseball for refusing to approve a television deal with News Corp’s Fox Network to give the financially strapped baseball team a quick injection of cash.
The WSJ’s DealBook reports the best part of the filing is who the Dodgers owe money to. Manny Ramirez is owed $21 million.
London Stock Exchange boss Xavier Rolet faces a crucial test this week as TMX Group owners vote on their planned merger with the LSE – a deal on a knife-edge that is likely to define his tenure.
Green is back in venture capital circles — but call it light green. Most venture investors are now shying away from clean-tech companies that require huge amounts of capital, Nichola Groom and Sarah McBride report.
Snatching up a well-managed and profitable solar company, however, has crept up the agenda of every global energy player trying to expand its solar portfolio in a post-Fukushima world.
More Asian hedge funds are hiring executives to police rapid-fire computer trades and nimble bets made by portfolio managers, with the goal of enticing some of the billions of dollars that institutions are looking to invest.
Deals wrap: Blavatnik’s Access Industries wins bid for Warner Music
Russian-born billionaire Len Blavatnik’s Access Industries has won control of Warner Music Group with an offer of $8.25 a share, according to a source familiar with the matter. The agreement would set the world’s third-largest music company’s enterprise value at approximately $3.3 billion.
The NYTimes’s Ben Protess shines a light on Len Blavatnik, chairman of Access Industries and the new controlling stakeholder of Warner Music Group. Well-known for his investing prowess, he came to America as a penniless teenager and after building a fortune on oil and metal companies, he’s worth roughly $10 billion.
In this analysis by Jennifer Saba, she argues that as Internet giants Google and Facebook slug it out to seal a deal with Web video conferencing service Skype, Facebook looks likely to be the more aggressive suitor, not to mention a better fit.
Investors frustrated in their attempts to buy some of the hundreds of failing U.S. banks are testing a new approach. Rather than wait for an ailing bank to be seized by regulators and sold off to a rival, dealmakers are touting a $6.5 million bankruptcy sale as a way to attract new investors able to infuse banks with life-saving capital.
Ailing carmaker Saab has asked Sweden’s debt office to approve a change in ownership so Chinese group Hawtai and U.S. investment fund Gemini can help get production restarted. Saab owner Spyker Cars said this week that the privately-owned Hawtai was eyeing an investment of 150 million euros ($210 million).
In a recent post, Breakingviews’ Robert Cyran sets out why he believes the merger between drugstore chain CVS and pharmacy benefit manager Caremark never made sense, and why the $50 billion company could be worth $13 billion more if it were carved up.
from Breakingviews:
GM needs to double earnings to repay taxpayers
General Motors' much anticipated initial public offering filing finally landed on Wednesday. But investors shouldn't get too caught up in the hype. Sure, the automaker looks in pretty decent shape thanks to last year's bankruptcy clean-up, and car sales are motoring away from last year's lows. But to repay U.S. taxpayers in full, GM needs to at least double its earnings.
That's assuming the carmaker is valued at the same earnings multiple as Ford Motor. Granted, GM and its bankers could argue that it has advantages over its cross-town rival that may warrant a higher valuation. It has far less debt, for starters. And it has a stronger position in fast-growing China.
But operationally GM is still lagging: the pre-tax margin on its global autos business was 5.7 percent in the second quarter. After years of losses and in a fairly low-margin industry, that's worth shouting about. But it falls shy of Ford's 7.2 percent margin in the same period. There's an even bigger gap of more than three percentage points between the margins the two manufacturers make in the key North American market.
Being generous to GM, assume the company should trade on the same price-to-earnings multiple as Ford -- 6.4 times next year's consensus earnings estimates, according to Reuters. The U.S. Treasury converted $43 billion of emergency loans into a 61 percent equity stake in the revamped GM that emerged from Chapter 11. That means the Motown manufacturer has to be worth about $70 billion for Uncle Sam to break even.
On Ford's PE multiple, GM needs to earn just shy of $11 billion next year to hit the desired target. Extrapolating earnings in the second quarter, GM would make as much as $5 billion this year. But thanks in part to higher commodity prices and other costs expected in the second half of the year, that figure is probably flattering.
If car sales continue to improve GM reckons it can increase production without pushing costs up too much, meaning the bottom line should get a significant boost next year. But it would require a heroic combination of bumper sales and stringent cost control to more than double profit. Until the new GM can prove it's caught -- if not overtaken -- Ford, it doesn't merit a valuation that will make taxpayers whole.
CONTEXT NEWS
Deals wrap: Can Genzyme play hardball?
Genzyme may be holding out for more money from suitor Sanofi-Aventis, but will find it difficult to persuade investors it is better off on its own. *View article *View Genzyme timeline
When GM filed for bankruptcy last summer, the automaker wiped out creditors, and critics warned that Wall Street investors would have a long memory. What a difference a year makes. *View article
What’s better than an angel investor? That would be a super-angel investor, of course. This new breed is shaking up the venture-capital industry. *View WSJ article
Everyone has a past, but Silicon Valley exec James Williamson used to play guitar for the Stooges. Now that’s cool. *View Venture article
Deals wrap: Selling the ex-bankrupts
General Motors’ coming initial public offering may be a hard sell. After all, the automaker burnt investors with its Chapter 11 filing a little over a year ago. The IPO of GM and, in time, those of other cleaned up ex-bankrupts like Delphi and Chrysler, deserve cautious investor interest. *View article
Barnes & Noble shares soared 21 percent after the struggling bookseller said it was up for sale and could get a bid from its founder to go private. *View article *View NYT’s article on who may bid for the company
Citigroup is poised to put its British online bank Egg up for auction as part of a plan to dispose of billions of dollars in unwanted assets, the Financial Times says. *View article
The New York Times sits down with Guillaume d’Hauteville, vice chairman for investment banking in Europe at Nomura Holdings. He discusses the uncertainty surrounding M&A in Europe in a question-and answer-article. *View NYT article
from Breakingviews:
As ex-bankrupt, GM deserves cautious IPO interest
General Motors' coming initial public offering may be a hard sell. After all, the automaker burnt investors with its Chapter 11 filing a little over a year ago. But companies that emerge from bankruptcy can significantly outperform the stock market. On the other hand, a third of them go bust again. The IPO of GM and, in time, those of other cleaned up ex-bankrupts like Delphi and Chrysler, deserve cautious investor interest.
Shares of formerly-bankrupt companies tend to do well if markets are anywhere from plodding to bullish. A portfolio of such stocks including Federated Stores (which later became Macy's) in the early 1990s, and another after the dot.com bust in the early 2000s, would have sharply outperformed stock indices. The early 1990s batch returned about 28 percent more over 200 days than stocks of similar pubic firms, according to a study by New York University professor Edward Altman.
There are several possible explanations. Analysts caught out by companies going bust may be overly cautious about their prospects when they return to the public eye. Executives may also be tempted to lowball expectations. After all, they get to take credit -- and some of the profit -- for beating targets.
But investors in companies that have been through Chapter 11 still need to be selective. About a third of re-emerging companies go bust again -- entering what is known as Chapter 22 -- within four years, according to academic studies.
For some firms, this happens because their products become obsolete. Silicon Graphics, for example, produced ultra-high end computers. The switch to networked groups of cheap machines doomed the group to a second bankruptcy. But the biggest cause of recidivism is too much debt, according to Altman. Those who file again for Chapter 11 protection on average have almost four times as much debt as equity. Those that avoid this fate on average have a debt-to-equity ratio of less than 1.5.
Uncle Sam's involvement in GM's bankruptcy may therefore turn out to be an important factor. The government forced pain on all parties, leaving the company's balance sheet relatively healthy. The firm has about $23 billion of debt and other obligations, mainly healthcare. And there's a $27 billion hole in its pension fund. Yet it has more than $23 billion in cash and may raise additional money through the IPO.
So a quick trip back into bankruptcy looks unlikely. Still, investors will have to take a careful look at GM's IPO valuation. The company might push for a heady price in an attempt to minimize U.S. taxpayers' paper losses on the bailout. With GM still having plenty to prove, that could leave little upside.
General Growth battle intensifies
The battle for control of General Growth, owner of shopping centers across America, continues, as it weighs two rival offers.
General Growth, which is trying to exit bankruptcy, will consider at a board meeting Thursday whether to postpone a key court hearing set for Friday as it continues talks with suitors Simon Property and Brookfied Asset Management.
It has asked Simon to increase its $5.8 billion bid. General Growth may also come back with a new counter0ffer on antitrust issues that could arise from a merger of the two largest U.S. mall owners.
Despite being in bankruptcy since last April after grappling with falling rents and rising vacancies, bidders are keen to take control of the Chicago-based company, which owns a number of malls which generate high cash in posh destinations.
If shoppers, which fuel America’s economy, return to stores in force, it could turn into a good investment.
Blockbusted – Icahn cuts stake in troubled video chain
Blockbuster‘s biggest shareholder, and one of the market’s most prominent activist investors, is heading for the door, heaping another note of gloom to the video chain’s hopes to avoid bankruptcy.
Filings show Billionaire investor Carl Icahn cut his stake in Blockbuster by selling more than 13 million shares. Over the past week he trimmed his ownership of the Class A shares to 5.1 percent as of March 29, according to a federal filing. In January he reported a 16.9 percent stake. He also reduced his stake in the company’s Class B shares.
To be fair, Blockbuster is already positioning itself for a trip to Bankruptcyland, having said earlier this month that it might need to file for protection from creditors.
Blockbuster and Icahn go way back to at least 2004, when Icahn spent $83.8 million to buy a 5.8 percent of its Class A stock. At one point he served on the company’s board and publicly criticized then-Chief Executive John Antioco. Perhaps he is keeping the remaining stake just so he can continue to wag his finger.
So far, the road to restructuring is looking like a one-way street for the video rental chain. Blockbuster said on Monday it was not in compliance with NYSE’s minimum market value requirements, which requires listed companies to have a global market capitalization of at least $75 million over a 30-day trading period. The company faces a debt load of nearly $1 billion.
The afternoon deal: Spare a dime?
From General Growth to Donald Trump, the Web is buzzing with news of companies trying to get into, out of, or just avoid bankruptcy.
Here is a selection from the past two days:
- Few think General Growth home lots worth $3 per share (Reuters)
- General Growth eyeing public market for exit: source (Reuters)
- Tribune given till March 31 to file bankruptcy plan (Reuters)
- Lehman led trading in bankruptcy claims in 2009 (Reuters)
- A month after bankruptcy, challenges still looming large for JAL (Kyodo News)
- Japan’s Willcom says files for bankruptcy (Reuters)
- Trucking failures to accelerate this year (Reuters)
- Trump, Icahn locked in battle for N.J. casinos (Reuters)
- Lawyers see bankruptcy, litigation boom coming (Nashville Business Journal)
